Reviving Uganda Airlines: How government plans to raise the money

Uganda hurriedly firmed up plans to revamp the country’s defunct airline in March 2019, after signing a purchase agreement for four Canadian Regional Jets 900 series, while at the Farnborough airshow in the United Kingdom.Uganda also signed a memorandum of understanding with Airbus for two A330 planes that are to be delivered in October 2020.

Documents seen by this reporter show that the six planes will cost Uganda $326.2 million (Ush1.2 trillion). All the money for the six aircraft is to be borrowed from different financiers. The four Canadian Regional Jets 900 series from Bombardier will cost Uganda $110.8 million (Ush411.6 billion) in total, while the rest of the money will be used to buy the long haul airbuses.

Since Uganda doesn’t have the money to purchase the aircraft, it has committed to borrow from different lenders, on yet to be agreed terms. The biggest value of the loan will be provided by four Export Credit Agencies (ECAs). Export Development Canada will provide 80 per cent of the money to buy regional jets from Bombardier. United Kingdom Export Finance, Bpifrance, the French Public Investment Bank, and Euler Hermes a company that provides credit insurance, bonding and debt collection services will deliver the 80 per cent of the $215.4 million (Ush800.2 billion) needed for two the long haul planes from Airbus.

In total the four financiers will cover $261 million (Ush1 trillion) of the total cost of the six planes. Correspondences between the Ministry of Works and Transport and the Ministry of Finance, Planning and Economic Development show that the remaining money will be raised through a syndication process with other banks. Since the process of raising money is still in the initial stages, a source familiar with the Uganda Airline project says the four lenders had to provide some of the money even before borrowing agreements could be concluded.

As a prerequisite for signing purchase agreements and memoranda of understanding for the six aircraft, Uganda was required to have paid a total of $55.1 million (Ush204.7 billion) before the end of July 2018.Uganda didn’t have this money. Correspondences between the Ministry of Finance, Planning and Economic Planning and the Ministry of Works and Transport show that Uganda had budgeted Ush139 billion ($37 million) for the Airline project in the financial year the 2018/19.

This money, however, wasn’t intended for the purchase of aircraft. But sources say Uganda decided this deal needed to be concluded urgently. As a result, Keith Mukanizi Uganda’s Secretary to the treasury has since allowed the Ministry of Works and Transport to reallocate aircraft money so that it can be used for initial payments for the aircraft.According to the Ministry of Works and Transport, the plan is to refund the money, have it reallocated to its original use during the 2019/20 financial year, when the loans from the Export Credit Agencies will be delivered.

Since the money available from the Uganda budget is not enough, the Export Credit Agencies have agreed to chip in and cover the shortfalls for the July payments. It is expected that conclusion of the loan agreements will have to be hurried; a total $125.9 million (Ush467.7 billion) has to be paid to the aircraft makers before the end of the 2018/19 financial year. Asked why there is now hurried activity less than a month after budget process was concluded, when Uganda had the opportunity to do all this legally earlier, a source who prefers anonymity because they are not allowed to speak of the subject says, aircraft makers told the government that if purchase agreements and memoranda of understanding were not signed around July 15 2018, processes initiated earlier would lapse.

Lapsing of these contracts would have, according to sources, delayed the Uganda Airline project. With countries on the continent now in the process of implementing the Single African Air Transport Market (SAATM), a delay in implementation isn’t a prospect Uganda’s Airline can afford. The SAATM is intended to open flying rights, allowing Airlines from Africa to pick and drop passengers without having to go back to the home airport. This means that Ethiopian Airways can move from Bore, pick passengers from Jomo Kenyatta and then drop them at Entebbe Airport.

Currently the arrangement is that if passengers are picked from Jomo Kenyatta by Ethiopian Airlines, they are taken back to Bore International, before being brought to Entebbe. Experts say that this change in how Airlines will operate once the SAATM becomes operational means that countries which will not yet have airlines will struggle. The long term plan of the SAATM is for African Aviation Authorities to remove the need for bilateral Air Service Agreements. If there is no longer need for bilateral Air service Agreements, experts say that it will be hard to arm twist aviation authorities in Africa for routes that Uganda Airlines intends to fly. The SAATM according to some experts is the reason Nigeria, Tanzania and Uganda decided to take the plunge of starting their airlines at this point in time.

The dangersSome other experts, however, rubbish this argument of getting routes, saying the only reason the Uganda Airline project is being operated in such an ad hoc and hurried manner is due to President Yoweri Museveni’s approach to things. “It is a one man show,” says Francis Babu, a Captain familiar with the business of Airlines.

He adds that although an airline is a feasible business, given Uganda’s location at centre of the African continent, the way the project is being handled spells doom for the taxpayer. He says the current decision, including to buy Airbus planes and not the Dreamliner from Boeing which is owned by Ethiopian Airways, Kenya Airways and Tanzania Air suggest Ugandan taxpayers should expect to make losses for some time.“The Airline business has small margins, so you need shrewd management with the ability to save on whatever they can. With a Dreamliner which is common in the region, Uganda would have been able to save on costs,” he says.